What Do You Want The Arbitration Award to Say?

After a bitterly contested four-day arbitration hearing in which attorney Bob represented the franchisor, the sole arbitrator awarded the claimant everything it had sought in this fight between franchisor and franchisee. It was a devastating loss for Bob and his client.

However, there was good news as far as Bob was concerned. Why? The arbitrator did not explain the reasoning for her award. It was just one line: “I find in favor of claimant and against respondent, in the amount of $1.2 million.”

“That can't be right,” Bob told the franchisor's president. “The parties and their lawyers are entitled to understand the basis for the award. How do we know if the arbitrator got it right? How do we know if the arbitrator analyzed each issue we presented?”

Trying to Get It Overturned

To try to overturn the arbitrator's decision, Bob developed a two-step strategy that he intended to present to all of his friends who do franchise work. The strategy: First Bob would go to court and ask the judge to require the arbitrator to state the reasons for the award. After Bob received the hoped for “reasoned” award, he would ask the trial court to vacate the award because “the arbitrator exceeded her powers in making the award.”

Bob concluded his strategy was most respectful of the arbitration process. He would attack the award only after he knew exactly what to attack, which is why he could not ' at least right now ' explain how the arbitrator had exceeded her powers in making the award.

Bob's “respectful” motion, seeking only the reasoning underlying the arbitration award, started with a bang. He argued:

We had a four-day arbitration hearing. The extensive evidence raised complex issues of contract interpretation and franchise law. After all that, the arbitrator rendered a mere one-line award. One line.

The award did not say how the arbitrator reached her decision. Nor did the award identify the issues the arbitrator considered. How can the parties know if the arbitrator's award is fair and just? They cannot.

The arbitrator disregarded the law by failing to discuss or even identify the grounds for the arbitration award. This court should tell the arbitrator to do what she should have done in the first place ' give the reasons for her award.

A no-explanation award is at odds with the arbitration process: Providing the basis for the award will enable the parties to better understand the award. It will lead to increased faith and trust in the arbitration process.

Several weeks later, Bob received the court's order in response to his motion to vacate. Stage One of Bob's strategy was ending. It was a rude close. The Order merely said: “Respondent's motion to vacate the arbitration award is DENIED.” No explanation, no reasoning. The court did exactly what the arbitrator did; it made a decision without providing any rationale. Talk about pouring salt into a wound.

Bob is peeved. Justifiably? No. Bob's client is peeved. Justifiably? You bet.

What Went Wrong?

As Chief Judge Easterbrook said in Affymax v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 660 F.3d 281, 285 (7th Cir. 2011), “[n]o rule of law requires arbitrators to render opinions ' or, having chosen to write an opinion, to discuss every issue that the parties contested.” In language that sadly resonates with Bob and his client, Chief Judge Easterbrook also noted, “[m]any an arbitration ends with an award saying who won but omitting reasons.” Id . As the court further stated, all of this makes it hard ' no, impossible ' to attack an arbitration award because “[s]ilence is just silence.” Id.

Chief Judge Easterbrook said one more thing that should be a wakeup call to any lawyer who drafts arbitration provisions: “arbitrators are free to act summarily, unless the parties' contract requires an opinion.” Id.

We should not blame the arbitrator for failing to explain the basis for her award in favor of Bob's adversary. We should blame Bob. Bob drafted an arbitration agreement that did not call for the arbitrator to discuss any issue in making the award. The pithy agreement said nothing about the nature of the award.

Bob could have avoided his predicament by writing an arbitration agreement that matched the parties' expectations, assuming the parties wanted a “reasoned” award. Bob could have drafted an agreement that required the arbitrator to write an opinion dealing with each issue. However, the agreement was silent. Under these circumstances, the arbitrator had the right to remain silent. In fact, the arbitrator did exactly what the parties wanted her to do.

You Get What You Bargain For

Won't this result lead to, or even encourage, flawed arbitration awards? Won't this result promote an arbitration process in which patently improper awards are immune from attack? In addition, won't this result discourage arbitrators from carefully sifting the evidence and writing carefully nuanced opinions supporting their awards? (All arguments Bob will make in his appeal papers.)

Parties choose arbitration for several reasons. One primary reason: to reduce the formality, costs and time of litigation. A reasoned opinion can undermine these goals. A reasoned opinion will increase the fees of the arbitrator; he or she has to spend additional time in drafting the opinion and may need a transcript of the proceeding. (“Big deal,” says Bob, “these incremental costs pale in comparison to the amount of the unfair award.”)

Plus, a reasoned opinion will give the losing side a chance to attack the reasoning. This attack will lead to court proceedings that will add yet more legal costs and delay the final determination of the dispute.

Did Bob's client bargain for these increased costs and delays? What if his client had won? Would Bob now be singing the same tune? Didn't Bob draft the arbitration agreement intending to keep the proceeding informal, the costs low, and the hearing short?

Bob cannot have his cake and eat it, too. He cannot insist on a short, informal and inexpensive arbitration proceeding and then import additional processes ' a reasoned opinion ' to make the proceeding long, formal and expensive. What Bob should do is think about these competing considerations before he drafts his next arbitration agreement. After he thinks about them, he should consult with his client about the best way to accomplish his client's objectives.

Conclusion

Bob's fundamental mistake here was not that he sought unsuccessfully in court to compel the arbitrator to provide reasons for her award. Nor was it that he drafted an arbitration agreement that did not call for the arbitrator to discuss the issues in a “reasoned” opinion. Bob's real blunder: he failed to sit down with his client, before contract drafting, and explain how the arbitration agreement potentially would affect the parties' dispute-resolution process. If Bob had “consulted,” his client then would have been able to decide how to construct a dispute resolution process that best served the client's needs and pocketbook.

The arbitration loss may have surprised Bob's client. However, Bob's communication failure caused the bombshell that undermined Bob's relationship with his now-peeved former client.

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, LLC, where he practices all types of Alternative Dispute Resolution, both as a neutral and as counsel to parties engaged in ADR. He is a former co-chair of both the Philadelphia Bar Association's Alternative Dispute Resolution Committee and the Fee Disputes Committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. You can reach him at 215-851-8406 and [email protected].

After a bitterly contested four-day arbitration hearing in which attorney Bob represented the franchisor, the sole arbitrator awarded the claimant everything it had sought in this fight between franchisor and franchisee. It was a devastating loss for Bob and his client.

However, there was good news as far as Bob was concerned. Why? The arbitrator did not explain the reasoning for her award. It was just one line: “I find in favor of claimant and against respondent, in the amount of $1.2 million.”

“That can't be right,” Bob told the franchisor's president. “The parties and their lawyers are entitled to understand the basis for the award. How do we know if the arbitrator got it right? How do we know if the arbitrator analyzed each issue we presented?”

Trying to Get It Overturned

To try to overturn the arbitrator's decision, Bob developed a two-step strategy that he intended to present to all of his friends who do franchise work. The strategy: First Bob would go to court and ask the judge to require the arbitrator to state the reasons for the award. After Bob received the hoped for “reasoned” award, he would ask the trial court to vacate the award because “the arbitrator exceeded her powers in making the award.”

Bob concluded his strategy was most respectful of the arbitration process. He would attack the award only after he knew exactly what to attack, which is why he could not ' at least right now ' explain how the arbitrator had exceeded her powers in making the award.

Bob's “respectful” motion, seeking only the reasoning underlying the arbitration award, started with a bang. He argued:

We had a four-day arbitration hearing. The extensive evidence raised complex issues of contract interpretation and franchise law. After all that, the arbitrator rendered a mere one-line award. One line.

The award did not say how the arbitrator reached her decision. Nor did the award identify the issues the arbitrator considered. How can the parties know if the arbitrator's award is fair and just? They cannot.

The arbitrator disregarded the law by failing to discuss or even identify the grounds for the arbitration award. This court should tell the arbitrator to do what she should have done in the first place ' give the reasons for her award.

A no-explanation award is at odds with the arbitration process: Providing the basis for the award will enable the parties to better understand the award. It will lead to increased faith and trust in the arbitration process.

Several weeks later, Bob received the court's order in response to his motion to vacate. Stage One of Bob's strategy was ending. It was a rude close. The Order merely said: “Respondent's motion to vacate the arbitration award is DENIED.” No explanation, no reasoning. The court did exactly what the arbitrator did; it made a decision without providing any rationale. Talk about pouring salt into a wound.

Bob is peeved. Justifiably? No. Bob's client is peeved. Justifiably? You bet.

What Went Wrong?

As Chief Judge Easterbrook said in Affymax v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 660 F.3d 281, 285 (7th Cir. 2011), “[n]o rule of law requires arbitrators to render opinions ' or, having chosen to write an opinion, to discuss every issue that the parties contested.” In language that sadly resonates with Bob and his client, Chief Judge Easterbrook also noted, “[m]any an arbitration ends with an award saying who won but omitting reasons.” Id . As the court further stated, all of this makes it hard ' no, impossible ' to attack an arbitration award because “[s]ilence is just silence.” Id.

Chief Judge Easterbrook said one more thing that should be a wakeup call to any lawyer who drafts arbitration provisions: “arbitrators are free to act summarily, unless the parties' contract requires an opinion.” Id.

We should not blame the arbitrator for failing to explain the basis for her award in favor of Bob's adversary. We should blame Bob. Bob drafted an arbitration agreement that did not call for the arbitrator to discuss any issue in making the award. The pithy agreement said nothing about the nature of the award.

Bob could have avoided his predicament by writing an arbitration agreement that matched the parties' expectations, assuming the parties wanted a “reasoned” award. Bob could have drafted an agreement that required the arbitrator to write an opinion dealing with each issue. However, the agreement was silent. Under these circumstances, the arbitrator had the right to remain silent. In fact, the arbitrator did exactly what the parties wanted her to do.

You Get What You Bargain For

Won't this result lead to, or even encourage, flawed arbitration awards? Won't this result promote an arbitration process in which patently improper awards are immune from attack? In addition, won't this result discourage arbitrators from carefully sifting the evidence and writing carefully nuanced opinions supporting their awards? (All arguments Bob will make in his appeal papers.)

Parties choose arbitration for several reasons. One primary reason: to reduce the formality, costs and time of litigation. A reasoned opinion can undermine these goals. A reasoned opinion will increase the fees of the arbitrator; he or she has to spend additional time in drafting the opinion and may need a transcript of the proceeding. (“Big deal,” says Bob, “these incremental costs pale in comparison to the amount of the unfair award.”)

Plus, a reasoned opinion will give the losing side a chance to attack the reasoning. This attack will lead to court proceedings that will add yet more legal costs and delay the final determination of the dispute.

Did Bob's client bargain for these increased costs and delays? What if his client had won? Would Bob now be singing the same tune? Didn't Bob draft the arbitration agreement intending to keep the proceeding informal, the costs low, and the hearing short?

Bob cannot have his cake and eat it, too. He cannot insist on a short, informal and inexpensive arbitration proceeding and then import additional processes ' a reasoned opinion ' to make the proceeding long, formal and expensive. What Bob should do is think about these competing considerations before he drafts his next arbitration agreement. After he thinks about them, he should consult with his client about the best way to accomplish his client's objectives.

Conclusion

Bob's fundamental mistake here was not that he sought unsuccessfully in court to compel the arbitrator to provide reasons for her award. Nor was it that he drafted an arbitration agreement that did not call for the arbitrator to discuss the issues in a “reasoned” opinion. Bob's real blunder: he failed to sit down with his client, before contract drafting, and explain how the arbitration agreement potentially would affect the parties' dispute-resolution process. If Bob had “consulted,” his client then would have been able to decide how to construct a dispute resolution process that best served the client's needs and pocketbook.

The arbitration loss may have surprised Bob's client. However, Bob's communication failure caused the bombshell that undermined Bob's relationship with his now-peeved former client.

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, LLC, where he practices all types of Alternative Dispute Resolution, both as a neutral and as counsel to parties engaged in ADR. He is a former co-chair of both the Philadelphia Bar Association's Alternative Dispute Resolution Committee and the Fee Disputes Committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. You can reach him at 215-851-8406 and [email protected].